The Misadventures of David Stern

It looks like David Stern picked the wrong week to quit sniffing glue. After a lengthy and contentious lockout, a brief antitrust skirmish, and the cancellation of 16 regular season games, the owners and the NBPA finally agreed to terms on a new collective bargaining agreement. The months of bad publicity quickly washed away, and then Stern stepped right into the Chris Paul nightmare, vetoing a three-team trade that would have sent the inevitably-soon-to-be-ex-Hornet Paul to the Lakers, Pau Gasol to the Rockets, and a solid core of players — Luis Scola, Kevin Martin, Lamar Odom, and Goran Dragic — to the league-owned Hornets. Meanwhile, Stern and the Hornets continue to search for a trading partner for Paul.

The immediate reaction to the veto was merciless and unanimous (one can only presume that the veto prompted the Hornets’ front office to note that this is something that could have been brought to their attention yesterday). The consensus was that Stern had overreached and was trying to get for the owners (through the veto) what he could not get for them through collective bargaining. Here’s why that particular point struck such a nerve. Framed as a battle between competitive balance and player freedom, the owners fought to institute a system that would both limit a player like Chris Paul’s ability to jump to a new (i.e., big market) team at the end of his contract and to limit the ability of the big market team to sign a player like Chris Paul. That’s not what they got.

If the owners truly wanted to flatten owner spending and limit the ability of the Lakers to spend, they could have insisted on a hard salary cap. If they wanted to bind star players to their teams and keep Paul on the Hornets, they could have insisted on an NFL-style franchise tag. They actually had the opportunity to institute both of these mechanisms when the NBPA dissolved as a union, leaving the owners free to implement any terms they wanted. But, the owners weren’t willing to risk the antitrust fight. So, they ended up with tweaks to the system that made it more attractive for Paul to stay with the Hornets and more expensive for the Lakers to spend, but not enough to stop Paul from actually moving to the Lakers.

Of course, the owners didn’t gift this system to the players. The players suffered through a five-month lockout and saw their share of BRI plummet from 57% to 49-51%, which represents an annual shift of about $300 million from the players to the owners. As an aside, some of these owners seem to have forgotten the old joke: How do you make a small fortune? Start with a large fortune and buy a professional sports team. I didn’t say it was a funny joke.

And, before the ink had dried on the new CBA, Chris Paul, the Hornets, and the Lakers took advantage of the system the players had fought for. Stern responded with a quick veto, thus negating the players’ victory at the bargaining table and accomplishing what the owners could not during the negotiations — maintaining competitive balance (in theory) and stopping the big market from getting the big star.

The question is: Can Stern do that? Well, there are two sources of power he can rely on — his role as commissioner of the league, and his role as owner of Hornets. Let’s take each on in turn.

Stern As Commissioner

Let’s start with Commissioners 101. As commissioner, Stern is vested with broad powers by the NBA Constitution (a document that is not collectively bargained between the players and owners), which provides that the commissioner “shall serve as the Chief Executive Officer of the League and shall be charged with protecting the integrity of the game of professional basketball and preserving public confidence in the League.” The commissioner is also given the “responsibility for the general supervision and direction of all business and affairs of the League and shall have all such powers as may be necessary or appropriate to fulfill this responsibility.”

There is precedent for a commissioner using his broad powers to veto a trade to protect the competitive balance of the league. Back in 1976, then-MLB commissioner Bowie Kuhn vetoed a trade made by Charlie Finley, the owner of the financially strapped Oakland A’s. Free agency had just arrived in baseball, the office of the commissioner in baseball was given great power and deference, and Finley’s trade was a true fire sale. He was moving the team’s three stars — Joe Rudi, Rollie Fingers, and Vida Blue — to the Yankees and Red Sox for cash. And, Kuhn and Finley had a contentious relationship. Earlier in his tenure as commissioner, Kuhn sent a telegram to Finley requesting that he appear at a disciplinary hearing. When asked if he had in fact said that Kuhn “could stick the telegram up his ass,” Finley responded: “No, that’s not right. I said ‘big fat ass.'”

With no love lost between the two, Kuhn stepped in and vetoed the trades, claiming they would debilitate the A’s, harm competitive balance in the league, and wreak general havoc with this new concept of free agency. Finley sued, claiming that Kuhn had abused his powers and improperly interfered with his ability to run his team. Not to let a lawsuit ruin a bad relationship, Finley called Kuhn the “village idiot” for vetoing the trades, then called a press conference to apologize to the village idiots. The court sided with Kuhn, holding that he was within his rights as commissioner to protect the game of baseball by blocking the trades.

But, Stern immediately distanced himself from the idea that he had pulled a modern-day Kuhn and that he had vetoed the trade as an exercise of his power as commissioner, first explaining that he had vetoed the trade for “basketball reasons,” and then releasing the following statement:

Since the NBA purchased the New Orleans Hornets, final responsibility for significant management decisions lies with the Commissioner’s Office in consultation with team chairman Jac Sperling. All decisions are made on the basis of what is in the best interests of the Hornets. In the case of the trade proposal that was made to the Hornets for Chris Paul, we decided, free from the influence of other NBA owners, that the team was better served with Chris in a Hornets uniform than by the outcome of the terms of that trade.

Why not rely on his role as commissioner in vetoing the trade? Because he must have known that it would have opened him up to a lawsuit that would have been difficult, if not impossible, to defend. Back in 1976, the MLB commissioner was seen as virtually untouchable and wielded great power over all aspects of the game. Yet, even then, the players complained that allowing Kuhn’s veto to stand would allow the commissioner to interfere with matters that were collectively bargained for under the guise of protecting the “best interests” of the game. As Marvin Miller, head of the MLB Players Association, said at the time, Kuhn’s decision was “sheer insanity” and Kuhn had “singlehandedly plunged baseball into the biggest mess it has ever seen.”

Today, the commissioner’s powers are not as far-reaching, and the players have been able to carve out in the collective bargaining agreements a variety of explicit protection limitations on the role of the commissioner. There is simply no way that Stern believed that his broad powers as commissioner entitled him to circumvent the product of months of negotiations and ignore the protections bargained for in the CBA by the players. In other words, Stern knew that his amorphous powers — that were not collectively bargained — could not trump the specific, detailed provisions of the CBA.

Stern also must have known that he was on equally shaky grounds for vetoing the trade in his role as commissioner for “basketball reasons.” Why? Because by most accounts, the trade was a good one for the Hornets. After the lockout, Paul made it clear that he would not sign an extension and would become a free agent on July 1, 2012. The Hornets were thus doing their best to avoid the fate of the Cavaliers and the Raptors, who both watched stars walk as free agents and got nothing in return. From that perspective, Dell Demps did a remarkable job, transforming seven months of Chris Paul into a strong four-headed Scola/Odom/Martin/Dragic monster.

And, here are some of the trades that have been allowed in professional basketball in the past:

Dr. J from the New Jersey Nets to the Philadelphia 76ers for $3 million (1976).

Charles Barkley from the 76ers to the Phoenix Suns for Jeff Hornacek, Tim Perry and Andrew Lang (1992).

Pau Gasol from the Memphis Grizzlies to the Lakers for Kwame Brown, Javaris Crittenton, Aaron McKie, the draft rights to Marc Gasol and first round picks in 2008 and 2010 (2008).

Vetoing the CP3 trade for “basketball reasons” after allowing these is a bit like vetoing Anchorman 2 after green-lighting Earnest Goes to Fresno. It makes no sense.

Stern As Owner

He couldn’t do it acting as commissioner, but what about as proxy owner of the Hornets? Here’s where things get interesting. Let’s start with the basic facts. Last year the NBA took the unprecedented step of buying the New Orleans Hornets, who were struggling to stay afloat financially and were arguably on the brink of extinction in New Orleans. Each of the 29 owners paid 1/29th of the purchase price, which totaled about $300 million. The league brought in Jac Sperling, a New Orleans native and vice chairman of the NHL’s Minnesota Wild, to run the franchise on behalf of the league and oversee their sale to a permanent buyer in New Orleans.

On its face, Stern’s decision (as de facto owner of the team) to not allow the trade seems more palatable. After all, it’s not uncommon for an owner to nix a proposed trade because he doesn’t like the deal. That’s the owner’s prerogative — they have free rein to make personnel decisions, for better or worse. If Stern simply did not want Scola or Odom on his team, or thought he could get a better deal (or, perhaps, if the potential buyer of the Hornets thought they could do better), that’s his call to make, just like it is for every other owner.

Of course, Stern is not every other owner, and it’s not even clear that he gets to act as the proxy for the 29 co-owners of the team. And this wasn’t an ordinary owner decision. This was not an owner saying I don’t want to make the trade because it’s bad for my team. This was an owner saying I don’t want to make this trade because it’s bad for the league. (To the extent there was any real doubt about the motivations for the veto, take a look at the responses from Dan Gilbert and Mark Cuban.)

Does that matter from a legal perspective? We know Stern’s decision is bad for the Hornets, but is there an argument that he wasn’t allowed to do it? There’s no clear answer to these questions, and it is the first time they have been asked. But, from a legal perspective, here’s one reason why it’s problematic: Aside from the clear conflict of interest, it stinks of collusion. Assuming the provision has not changed from the previous agreement, the NBA CBA has an explicit “anti-collusion” provision that prevents NBA teams from entering into “contracts, combinations or conspiracies, express or implied, with the NBA or any other NBA Team concerning the terms or conditions of employment offered to any Veteran or Rookie.” (Any collusion charge must be brought to the NBA’s “system arbitrator” — a federal antitrust claim would be preempted by the collective bargaining agreement — who is empowered to award a player twice the damages he can prove were caused by the collusion.)

The ownership structure of the Hornets is obviously inherently collusive. After all, 29 NBA teams had entered into an agreement that would allow them to directly control the terms of employment of the players on the Hornets. To avoid that obvious stench of collusion, the NBA put Jac Sperling in place and Stern made clear that the league would permit any roster decisions made by the Hornets’ management team.

Of course, that’s not what happened here. Hornets’ management put together a good trade, at least two owners (Mark Cuban and Dan Gilbert) complained, and Stern vetoed it. Isn’t that collusion? Although it smells like it, this is a tough case. Collusion requires a conspiracy — multiple competitors agreeing to do (or not do) something. For example, Major League Baseball owners colluded against their players by agreeing not to pursue any free agents following the 1985-1987 seasons. (For another example in a slightly different industry, see the New Day Co-Op).

In this case, it’s not clear there’s evidence that Stern’s decision was part of a conspiracy among the owners, so there might not be enough to establish a legally recognizable agreement. Owners may have complained about the trade, but it will be difficult to infer concerted conduct from the individual complaints. And, Stern was careful with his words in delivering his statement about the trade, explaining that his decision was made “free from the influence of other NBA owners.” Even with a smoking gun in the form of an agreement between Stern and some of the owners, the owners can argue (like, in essence, Stern is arguing) that they were acting as part owners of the Hornets, not as owners of their other teams, and in fact had a right to veto the trade. There’s no clear answer to the collusion question, but it would certainly be a tough battle for Paul to win.

The fact that the Hornets may end up with a better deal as a result of all of this doesn’t make the issue go away. Stern will have been able to use the cloak of team ownership to accomplish something he could not do as commissioner and could not get through collective bargaining. In one overreaching swoop, he changed the course of the league and the face of perhaps five different franchises.

Players and fans can, however, take solace in the fact that this won’t be the start of a trend. Once CP3 is traded, and once the Hornets find a new owner, the issue will be moot (unless the NBA finds itself owning another team down the road). But, the bigger issue is that it’s clear that we are headed for another labor dispute when this new CBA expires. We’re less than a month past the lockout, the ink on the new deal hasn’t even dried yet and we already have owners complaining about the deal. The owners and players were able to save most of the season this time around and push the fight off for another day. But mark your calendars. Since both sides have an opt out after six years, we could be right back where we started in the summer of 2017. There’s another fight coming